Bridging Watch: B2L stamp duty rise is no more than a molehill


The stamp duty increase is unlikely to be significant enough to deter potential market entrants or most existing landlords

With the stamp duty hikes for buy-to-let properties just around the corner, there is a palpable sense of anticipation among professionals as to how the market will react.
I have seen various headlines recently forecasting a mass market exit, and even the death of the buy-to-let mortgage altogether, but I cannot help but feel the majority of these predictions have been greatly exaggerated by the media.

Lending volumes for the wider buy-to-let sector will undoubtedly – if only temporarily – slow, but I do not expect the tax increase to have anywhere near the same effect on the bridging market.

Indeed, the brunt of the change is more likely to be felt by the consumer buy-to-let area of the market than by professional landlords and specialist investors, which tend to make up the majority of bridging loan clientele.

New and inexperienced investors may have to reconsider their finance strategies in order to accommodate the changes but I doubt the increase will be significant enough to deter potential market entrants.

As for the top end of the market, landlords and property professionals have had good time to prepare for the tax hikes and I expect most have already adapted their business models to offset the additional costs. Whether this translates to a rise in rental prices is yet to be seen but, from the conversations we have had with our own clients, although the surcharge is clearly unwelcome it poses minimal risk to bridging volumes.

For investors with particularly large portfolios, buying through a special-purpose vehicle could offer a way of avoiding the tax rises. As a means of encouraging investment in large-scale housing, companies with more than 15 residential properties may be exempt from the increase. Although this will apply only to the very top end of the market, it may well contribute towards the growing number of investors setting up limited companies in order to avoid the cap on mortgage interest relief.

Predictions of panic have certainly not come to fruition. The surge in landlords looking to complete before the new regime comes into place represents logical moves from professionals with investments already in the pipeline, rather than a case of panic buying. That said, activity in the market around buy-to-let has not felt as chaotic as we have been led to expect. We may well see a further increase over the coming weeks and, even if this does result in a market bubble and slump either side of April, I envisage the impact to be short-lived.

In terms of the long-term effect on the market, it is worth keeping in mind the Government’s reasoning behind its housing policy. If the surcharge achieves its goal of slowing house-price growth and creating a more level playing field for owner-occupiers, it should also create a more competitive marketplace, which could open up a number of opportunities for clients, in particular bridging developers.

The buy-to-let sector proved its mettle in the face of numerous threats to market growth last year and I suspect the increase in stamp duty tax is certainly not the last challenge we will face this year.

For the bridging sector in particular, the increase is more of a molehill than a mountain to overcome and I would not be surprised if bridging volumes show little fluctuation in its wake. Bridging clients generally remain some of the most experienced and sophisticated investors and I have no doubt the majority have already adapted and readjusted to what is effectively a new cost of entry to the market.

Lucy Hodge is director at Vantage Finance